Chapter 13 Specific Questions

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There are numerous ways of presenting information about Virginia’s laws on bankruptcy. Writing a long narrative on the subject is one way. However, we know that if there is one thing that a person overloaded with debt has more of than bills – it is a lot of questions of whether a bankruptcy will be to their benefit. So we elected to follow a “Question and Answer” format for this and other pages dealing with the subject of personal bankruptcy. Click on any question below to reveal the answer:

Chapter 13 is a part of the United States Bankruptcy Code that allows individuals to reorganize their debts under the protection of a federal court. A person filing under Chapter 13 is referred to in the Code as a “Debtor”– one who owes a debt. The Debtor submits a “plan,” usually drafted with the assistance of an attorney, to repay all or a part of his or her debts, generally in monthly installments, and generally over a five-year period. The plan must be approved by the court to become effective. Once the plan is approved, creditors will be prohibited from collecting their claims directly from the debtor. The debtor must make all payments under the terms of the plan to keep the court protections.

The periodic payments are made to a person called the “Chapter 13 Trustee.” The Trustee collects moneys from the debtor and pays it over to the creditors as called for in the plan. Upon completion of the payments, the debtor is discharged from further liability for the remainder of his or her dischargeable debts.

Under Chapter 7, the debtor may lose all or most of his or her non-exempt property in exchange for a Chapter 7 discharge of debts. Under Chapter 13, the debtor usually retains his or her non-exempt property while paying off in monthly cash payments as much of his or her debts as is possible.

Under Chapter 13, the court has the power to protect the debtor from the actions of creditors. A private debt consolidation service does not. The court has the power to prohibit creditors from garnishing wages, foreclosing on the debtor’s home and from repossessing the debtor’s automobile. The court also has the power to force certain creditors to accept a Chapter 13 plan that pays only a portion of the claim. Debt consolidation services have none of these powers. However, you should be aware that a debt consolidation service (for example, the Peninsula Consumer Credit Counseling Service) might be able to help you reorganize debts when you do not need the protection of a court. It is a good idea to check out the benefits of a debt consolidation service such as PCCCS if you have any time to do so. Their services are provided at low or no cost.

Usually not. Under Chapter 13, creditors are paid out of your future income, not from your existing property. If you have property that you desire to surrender as part of your Chapter 13 plan, this can be arranged. Also, if you have valuable non-exempt property but insufficient income to “buy back” these items, some of your property may have to be used to pay creditors.

Non-exempt property is that property which is not protected by law from being taken by creditors in a bankruptcy. In Virginia, a debtor is allowed to exempt (“protect”) a significant amount of property, including $5,000 worth of household goods, $2,000 worth of equity in an automobile, an additional $5,000 worth of equity in any other property. Click here if you want to read the actual text of the exemption statutes.

Each partner in a marriage can claim a separate exempt estate, essentially doubling the value of the property that can be protected. In most cases, the exemptions are more than enough to protect all of the debtor’s property. Occasionally, a debtor will have property that exceeds the amount that can be exempted (for example, a large equity stake in a home). In such cases, careful planning must be done to determine how, if at all, a bankruptcy should be approached. Generally, the non-exempt property can be “bought back” from the creditors with a properly drafted Chapter 13 plan.

Chapter 13 is usually chosen by those who (1) wish to repay all or part of his or her unsecured debts and has at least some income at the end of each month to do so; (2) have valuable nonexempt property (such as a house or a car) which might be lost in a Chapter 7 case and which they wish to “save”; (3) are facing foreclosure or repossession because of late payments, but who wish to keep these items and can now afford to make the regular payments; (4) are not eligible for a discharge under Chapter 7 because the debtor has too much income and/or too much property; or (5) are not eligible for Chapter 7 protection because he/she/they filed for and received a Chapter 7 discharge within the past 8 years.

IChapter 13 is always “voluntary.” You can never be ‘forced’ into filing or even completing a Chapter 13 bankruptcy. However, you can be forced out of a Chapter 7 if you don’t meet the ‘means test,’ or be facing other situations which makes Chapter 13 appear to be your only real option.

Clearly, if you have a lot of property or a lot of disposable income, just because you want to file a Chapter 7 doesn’t mean that you can. Chapter 7 was designed for those who are in quite desperate situations with little or no alternative but to file for a complete discharge. Chapter 13 was created for the “middle ground” type setting–not enough money to pay all the bills, but enough to pay some of them.

Anyone who is not able to repay his or her creditors in full, but wants to try to pay at least part of the account over a period of time, can benefit from a Chapter 13.

No. While certain debts, such as debts for taxes and fully secured property which you wish to keep must be paid in full under a Chapter 13 plan, only an amount of money that you can reasonably afford to pay per month is required. The unpaid balance of most unsecured debts that are not paid in full under a Chapter 13 plan are discharged upon completion of the plan. Exceptions to discharge include spousal and child support payments, most student loans, and a few other types of debts that your attorney will discuss with you.

Usually all of your disposable income must be paid to the Chapter 13 Trustee. “Disposable income” is defined as any income that you receive over that which is not reasonably necessary for you and your dependents’ support. In effect, disposable income is what is “left over” after paying your necessary living expenses. (Remember, as you are calculating your disposable income, do not count your monthly credit card and similar obligations as “necessary living expenses.” These are the debts that will be paid from your end-of-the-month “excess income.” You generally will pay the credit card creditors substantially less than the monthly payment that they are currently demanding.)

A Chapter 13 plan lasts for a presumptive period of five years, unless all debts have been paid off in less time. You and your attorney will decide together the time period which best meets your needs.

ny person may file under Chapter 13 if that person has regular income, has unsecured debts of less than $310,000 and secured debts of less than $925,000 (these two figures are adjusted every three years and may be outdated–check with your attorney for the most current amounts), resides in the United States, is not a stock broker or a commodity broker and has not been a debtor in another bankruptcy case that was dismissed “with prejudice “within the last 180 days.

Yes. And if the debts owed by the married couple are primarily joint debts, this probably is the best way to proceed. There are times when a joint filing is not advisable. You should speak with your attorney if you have any questions regarding this. However, even if one spouse files, you will have to include his or her income in determining the monthly repayment amount. (You can also include your spouse’s separate expenses, which will minimize the impact, if any, that including your spouses income will have on your filing.

The process begins with a call to the attorney’s office to schedule an interview with the attorney. The initial consultation takes only about a half an hour, during which we cover the essentials of bankruptcy law and apply them to your particular situation. You do not have to bring anything to the interview, except perhaps a brief listing of your creditors and how much you owe them. You will have a good idea at the end of that interview of your various options, and to the extent that non-bankruptcy options were suggested, you will be encouraged to pursue those before scheduling another interview in our office. We will give you some forms to complete and list of items to return if you decide that bankruptcy protection is your best option. You will feel no pressure to retain one of our attorneys when you come in to talk with us. Except in emergency cases, you cannot even retain the attorney at this initial consultation.

If you decide to file for bankruptcy protection, we will schedule a second appointment to review the paperwork you completed and begin filling out the extensive paperwork for the filing. After the attorney completes your petition/paperwork, you’ll need to review and sign it. The bankruptcy petition and schedules are filed with the bankruptcy court. A Chapter 13 Plan by which you propose to pay towards your bills is prepared by you and the attorney, and submitted to the court.

The Court will schedule a hearing with a trustee and your potential creditors. Although creditors are invited to attend the hearing, they rarely do. We, of course, will be at the meeting to represent you.

At the hearing, the trustee will ask you questions about the accuracy of your filing, your present financial situation and may request additional information from you. The Trustee will inquire on any concerns he has about the feasibility of the Plan.

You must initiate Plan payments within 30 days of the original filing. At the conclusion of the plan period (typically five years), and assuming no complications, your case will come to an end, and you will be granted your discharge in bankruptcy. You must attend a debtor education course with a certified agency before the discharge can be issued.

Attorney’s fees vary depending upon the complexity of the case. Attorney’s fees for a Chapter 13 is generally higher than fees for a Chapter 7, reflecting the greater amount of attorney involvement over the three to five year length of the plan. Fees generally hover around $1,750 to $3,000, depending upon the number and type of creditors, whether you are currently in arrears, if you are self-employed, etc. (If another attorney is quoting you a fee that is substantially lower than we have stated, ask about any hidden charges, or if more money will be due after the case is filed, or if he is going to be petitioning the court for additional fees. Some attorneys have been known to quote an abnormally low attorney’s fee, and when you get to the office, they tack on an “administrative” or “document preparation” fee, or simply file with the court for additional compensation without notifying you that they are doing so. At Denbigh Law Center, we tell you up front what the fees are, and never hide anything from you to make you think you are getting a better “deal.”)

You should expect to pay a reasonable fee for legal services, and be wary of a quote that seems too low. The attorney’s staff should be able to quote an accurate fee for a routine case over the telephone. Specific fees will be set in advance after consultation with your attorney.

At Denbigh Law Center, we will finance more than half of the attorney’s fee within the Chapter 13 plan, making the actual “up front” costs of proceeding under Chapter 13 similar to that of Chapter 7. The balance of the fees are paid to us by the trustee (from your plan payments, of course) in a fashion similar to the way that your other creditors get paid.

There is also a filing fee payable to the Clerk of the Bankruptcy Court when the case is filed.

Chapter 13 is a bankruptcy proceeding. It would be unfair to represent otherwise. Like any bankruptcy, a Chapter 13 will have a negative effect on your credit rating. However, if most of your debts are paid off under a Chapter 13 plan, that factor will be taken into account by credit reporting agencies. If very little is paid on your debts, the credit rating effect of a Chapter 13 may be similar to that of a Chapter 7 case.

If you become temporarily out of work, injured or are otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified to postpone one or more payments until the situation resolves. If it appears that your inability to make the required payments will continue for an extended period, the case may be dismissed or converted to Chapter 7.

When you file a Chapter 13 bankruptcy, the law automatically imposes a “stay” which prohibits creditors from proceeding to collect a debt owed by you and by any co-signers on that debt. If your plan provides for repayment of the co-signed debt in full, your co-signers likely will never be contacted by the creditor.

These situations are “ideal” for handling through the Chapter 13 process. With regard to your home, if you believe that you will be able to make all future regular monthly payments, and can also afford to make an additional payment to retire the arrearage, you will likely be able to keep your home out of foreclosure. Foreclosures can be stopped even if the newspaper ads have already run. So long as the foreclosure sale has not actually taken place, the Chapter 13 plan can be used to protect your home. Protecting an automobile can be done in several fashions, each of which needs to be explored with the assistance of your attorney.

Choosing the right attorney to represent you at this difficult time is an important decision. You want an attorney with experience. You want an attorney who will sit down with you face-to-face to discuss your particular situation and to propose to you an individual solution, not just put you in front of a TV set to watch a video. At Denbigh Law Center, we have helped clients with serious financial difficulties for over 20 years. We have no videos, just knowledgeable, experienced lawyers who will meet with you face-to-face to learn your situation and, with your help, develop the appropriate response for your individual needs.

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